Not a surprise, but the GOP in Congress is hoping to make permanent a rather lamentable part of the Bush revenue reductions--the 15% rate on capital gains AND dividend payments. As readers know, those preferential rates are especially beneficial to the top of the tier in the US tax system--the uberwealthy who own most of the financial assets and reap most of the passive income by just sitting around and collecting. Why ordinary Americans ever let Congress get by with enacting preferential rates for the primary income source of the super-rich is hard to fathom. That is class warfare by deception, of course, as it is usually practiced in this country. The wealthy rake it in, no matter what.
The preferential rate for capital gains has no foundation in economic policy, though you will hear a lot about how the rate is intended to stimulate growth by providing more income to investors to reinvest. Of course, there is never any requirement of reinvestment--and certainly no requirement of investment in US companies that create US jobs for ordinary US taxpayers.
Then you hear a lot about how the people who have capital gains are the "real entrepreneurs" of the country, and we have to reward them (by letting them keep a larger proportion of their pre-tax dollars than their secretaries and landscapers can) so that they will keep on being entrepreneurs. Bullshit. First, they are not likely to be entrepreneurs, currently. Maybe they were once, but like Bill Gates, they are monopolists now. And even if they were once entrepreneurs, they are more likely to be wedded to old ways of doing it than to new, innovational, job-creating, history-changing ways. And they may well have never been anything but the son (or granddaughter) of an entrepreneur, raised in silk stockings and better-than-thou status and incapable of even real noblesse oblige.
So the next argument is all about how these people have put their hard-earned capital at risk to benefit all society, and deserve the preferential rates as a reward to that risk-seeking activity. Riskiness, priskiness. We had a little too much risk-seeking for our own good, and that has got us into this royal stew of an economic mess. Besides, there's risk, and there's risk. Risk that is just speculative betting on the markets (like a lot of AIG's credit default swap book) doesn't do anybody any good. (Not even AIG, as it now knows.) Risk that is taking a chance on a marvelous new innovation that could make a difference to people's lives, or save wolves, or create peach trees that yield fruit with half the water--now that, my friends, is entrepreneurialism, but it is more likely to come out of the Mississippi State University Ag and Tech department then out of financial capitalists invested in somebody's high stakes private equity or hedge fund.
So the fall back argument is--gee, but these financial capitalists invested their money for the long term, and half their gain is really inflation so they shouldn't be taxed on that. Comeon, what a rip off that argument is. the argument certainly doesn't apply to day traders. Or even month traders. In fact, you'd need a really long holding period before it would make much of a difference whether you took inflation into account or not. And, after all, there is already that rather nifty little provision in section 1202 that provides an exclusion for HALF (yes, read it again, half) the gain when you've held stock since issuance and satisfied a few other long-term interest tests. So if you made the rate applicable only for stocks held for 20 years or so, maybe I'd buy an inflation adjustment component to the gain calculation. Otherwise, nutty.
It's just plain unfair, as Dorothy Brown so eloquently wrote in the New York Times, to tax labor at double (or more, these days) the rate that financial asset income is taxed. The Bushies did it because they were cronies with the big capitalists. The Obama Administration should let those provisions die a painless death in 2010, as they are written to do. Let dividends go back to being taxed like interest income. Let capital gains go back AT LEAST to being taxed at the Clinton-era 20% rate. Bush's favoritism for the wealthy financial-asset holding class should end. It is class warfare at its worst.
But, no, here is Senator Crapo (what a fitting name, for this Republican from Idaho) with his introduction of crappy legislation S. 567 to make the Bush era giveaways to the wealthiest people in this country permanent by legislating the 15% rate for capital gains and dividends permanently into the law. By the way, this is nothing new with Crapo--he has been offering bills to reduce the taxes paid by the holders of capital assets for years. He introduced a similar bill in February 2007, as S. 502 (this link provides a pdf of the earlier legislation). He is one of these who claims that cutting tax revenues makes growth happen. See this release relating to S. 502. Funny, considering how much federal revenues were cut by the myriad Bush tax cuts, why don't we have any growth at all right now? Why are we in a catastrophic Great Recession, given the long-term tax cut rules that Bush and the GOP put into play?
The rest of Crapo's policies are of the same stripe. Crapo voted in 2000 to proritize tax cuts above paying down the national debt--that was back when we had a surplus, before the Bush economic policies sent us down into the highest deficits since Reagan and the worst economy since the Great Depression. He also voted NO on the bill that was intended to repeal the tax susbidy for companies that move US jobs offshore (March 2005), YES on restricting rules for personal bankruptcy in 2001, and votes pro-business 91 percent of the time. He wants the government to kill more US citizens (broader use of death penalty, and making death penalty appeals harder to win) and build more prisons (more wasteful expenditure of funds on prisons instead of education). He didn't like the idea of eliminating corporate tax loopholes so that we could shift money to education (March 2005) and would have been supportive of giving federal aid only to schools that allowed prayer (which he thought should be supported by a constitutional amendment). He'd like to repeal the estate tax, and not have people that make more than a million a year pay more in taxes. See here and related links for all of this. He is rated 0% by Citizens for Tax Justice for his opposition to progressive taxation. No surprises there.
I say. No Way. Hope the Congress has the sense to let that bill go. Between the money we've already thrown at the wealthy financial asset- holding class through bailouts of the banks and AIG, and the money we are throwing at them through some of the business-friendly provisions of the stimulus package, it is high time to go back to the Reagan-era reform of making the rates on salaries and dividends or capital gains the same--no character distinction whatsoever. Do I hear a second, anyone?
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